The artificial intelligence (AI) arms race is still the prevailing theme in the market. Even though billions have been spent this year on record-setting data center capital expenditures, that number is projected to continue rising for the foreseeable future.
This benefits one industry in particular: semiconductors. These products account for a significant portion of the cost of a data center build, benefiting three companies (among many others) that appear to be great buys now: Nvidia (NVDA +2.06%), Taiwan Semiconductor Manufacturing (TSM +5.74%), and ASML Holding (ASML +8.74%).
Investors should consider buying all three of these stocks and holding them for the long term, as they're poised to benefit significantly from the ongoing AI spending spree, which is far from complete.
Image source: Getty Images.
1. Nvidia
Because these three companies are close to their customers, they have a good idea of what spending is coming down the pipeline. One of the biggest revelations Nvidia revealed during its latest earnings call is that it expects the big four AI hyperscalers to spend around $600 billion on data center capital expenditures this year.
However, by 2030, worldwide data center capital expenditures are expected to reach $3 trillion to $4 trillion. That's a massive jump from today's record-setting spend, and all three of these investments are slated to rocket higher should that projection come true.
NASDAQ: NVDA
Key Data Points
Nvidia is the most obvious benefactor, as it's the closest to the end customer. It also has the best margins of the three, so this revenue growth will directly translate into increased profits. Nvidia's graphics processing units (GPUs) have been the computing muscle behind the AI arms race since their inception, and the company's continuous innovation in this field has kept it at the forefront.
The chipmaker estimates that it receives about 35% of the total spent on a data center, which positions it well if this $3 trillion to $4 trillion market emerges by the end of the decade.
2. Taiwan Semiconductor
Second on the list is Taiwan Semiconductor. Thisi is a chip foundry that fabricates other companies' chips on their behalf. Nvidia uses TSMC chips, but so do other prominent tech companies, including Advanced Micro Devices, Broadcom, and Apple. This positions TSMC to be a long-term winner regardless of whose technologies are being widely deployed in data centers.
NYSE: TSM
Key Data Points
Additionally, it's launching new technologies that will improve power consumption by its chips. Later this year, TSMC is slated to launch 2nm chips, which are expected to provide a 25% to 30% power consumption improvement over its 3nm chipset. Beyond that, it is working on a 1.6nm and 1.4nm node that offers a similar level of power consumption improvement.
Energy consumption is a growing concern as AI infrastructure expands, and TSMC's innovations should help it maintain its position as the leading chip manufacturer.
3. ASML
None of TSMC's chip technology would be possible without ASML's machines. ASML manufactures extreme ultraviolet (EUV) lithography machines used to lay the tiny electrical traces on a chip. TSMC's 2nm or 3nm terminology correlates to the distance between electrical traces on a chip, with its current 3nm chipset having a 3-nanometer spacing between traces.
NASDAQ: ASML
Key Data Points
This takes an incredibly specialized machine, and ASML is the only company in the world that has these capabilities. This gives ASML a technological monopoly in this industry, and anytime you hear of a new chip factory being built, you should immediately assume that ASML will see increased business as a result.
ASML is a great alternative pick in the chip space, and with the stock down around 30% from its all-time high at present, it makes for an excellent long-term value investment.
